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CASH AND TREASURY MANAGEMENT COUNTRY REPORT

ISRAEL Executive Summary

Banking

The Israeli central bank is the Bank of Israel. Bank supervision is performed by the Bank of Israel’s Banking Supervision Department.

Israel applies central bank reporting requirements. All transactions between residents and non- residents are reported to the Bank of Israel.

Resident entities are permitted to hold fully convertible domestic and foreign currency bank accounts domestically and outside Israel. Non-resident entities are permitted to hold fully convertible domestic and foreign currency bank accounts within Israel.

The banking system is dominated by Bank Hapoalim and Bank Leumi le-Israel. There are also another 15 commercial banks in operation, one non-bank financial institution plus five branches of foreign banks.

Payments

Israel has three principal payment systems: the RTGS system (Zahav), the Banks’ Automated Clearing House (Masav) and the Banks’ Paper-based Clearing House (BCH).

The increased use of electronic and internet banking has led to growth in the use of electronic transfers and direct debits. Card payments are increasing rapidly, especially in the retail sector. Checks remain commonly used.

Liquidity Management

Israel-based companies have access to a variety of short-term funding options. There is also a range of short-term investment instruments available.

Both cash concentration and notional pooling are used by companies in Israel to manage company and group liquidity.

Trade Finance

Israel has established free trade arrangements with the European Union (EU), the European Free Trade Association (EFTA), Mercosur (a common market comprising Argentina, Brazil, Paraguay and Uruguay), the USA, Panama, Colombia, Canada, Mexico, Egypt, Russia, Jordan, Vietnam, Sri Lanka and Turkey.

ISRAEL Return to Contents page 2 © April 2018, AFP Country Profiles.

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ISRAEL Go to Contents page 3 PNC’s International Services

PNC can bring together treasury management, foreign exchange, trade finance and credit capabilities to support your international needs in a coordinated and collaborative way.

International Funds Transfers point of contact for setting up the account helping International Funds Transfers to over 130 countries in with any language and time barriers and will USD and foreign currency can be accessed through continue to serve as an intermediary between you PINACLE®, PNC’s top-rated, online corporate banking and the bank you select. You can access reporting portal. and make transfers via PINACLE. QQPNC’s Gateway Referral service can connect you to a Multicurrency Accounts correspondent banking network that comprises more Set up demand deposit accounts that hold foreign than 1,200 relationships in 115 countries. currency instead of U.S. dollars. These accounts offer a simple and integrated way to manage and move money Foreign Exchange Risk Management denominated in more than 30 currencies, including PNC’s senior foreign exchange consultants can help offshore Chinese Renminbi. You can easily view deposit you develop a risk management strategy to mitigate and withdrawal details through PINACLE. the risk of exchange rate swings so you can more effectively secure pricing and costs, potentially PNC Bank Canada Branch (“PNC Canada”) increasing profits and reducing expenses. PNC Bank, through its full service branch in Canada, can help you succeed in this important market. Trade Services PNC Canada offers a full suite of products including PNC’s Import, Export, and Standby Letters of Credit payables, receivables, lending, and specialized can deliver security and convenience, along with the financing to help streamline cross border operations. backing of an institution with unique strengths in the international banking arena. PNC also provides Multibank Services Documentary Collections services to both importers PNC’s Multibank Services provide you with balances and exporters, helping to reduce payment risk and and activity for all your accounts held with PNC and control the exchange of shipping documents. We other financial institutions around the world. PINACLE’s assign an experienced international trade expert Information Reporting module can give you a quick to each account, so you always know your contact snapshot of your international cash position, including at PNC and receive best-in-class service. And PNC USD equivalent value, using indicative exchange rates delivers it all to your computer through advanced for all your account balances. You can also initiate technology, resulting in fast and efficient transaction Multibank Transfer Requests (MT101s), and reduce the initiation and tracking. time and expense associated with subscribing to a number of balance reporting and transaction systems. Trade Finance For more than 30 years, PNC has worked with the Establish accounts in foreign countries Export-Import Bank of the United States (Ex-Im Bank) Establishing good banking relationships in the and consistently ranks as a top originator of loans countries where you do business can simplify your backed by the Ex-Im Bank both by dollar volume and international transactions. PNC offers two service number of transactions.1 models to help you open and manage accounts at other banks in countries outside the United States. Economic Updates QQPNC Gateway Direct comprises an increasing number Receive regular Economic Updates from our senior of banks located in many European countries and economist by going to pnc.com/economicreports. parts of Latin America. PNC’s team will serve as a (1) Information compiled from Freedom of Information Act resources.

Return to Contents page 4 PNC and PINACLE are registered marks of The PNC Financial Services Group, Inc. (“PNC”).

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Return to Contents page 5 Contents

Executive Summary ...... 2 PNC’s International Services ...... 4 Financial Environment...... 9 Country Information...... 9 Geographical Information ...... 9 Business Information...... 9 Country Credit Rating...... 10 Economic Statistics...... 11 Economics Table...... 11 Sectoral Contribution as a % of GDP ...... 12 Major Export Markets...... 12 Major Import Sources...... 12 Political and Economic Background...... 13 Economics...... 13 Interest Rate Management Policy...... 13 Foreign Exchange Rate Management Policy...... 13 Politics...... 14 Government Structure...... 14 Major Political Issues...... 14 Taxation...... 16 Resident/Non-resident...... 16 Tax Authorities ...... 16 Tax Year/Filing...... 16 Corporate Taxation...... 16 Advance Ruling Availability...... 17 Withholding Tax (Subject to Tax Treaties)...... 17 Tax Treaties/Tax Information Exchange Agreements (TIEAs)...... 18 Transfer Pricing...... 18 Anti-avoidance and Disclosure ...... 18 Cash Pooling ...... 18 Financial Transactions/Banking Services Tax...... 18 Thin Capitalization...... 19 Stamp Duty...... 19 Sales Taxes/VAT (incl. Financial Services)...... 19 Capital Gains Tax...... 19 Payroll and Social Security Taxes...... 20 Real Property Taxes ...... 20 Other Taxes...... 20 Cash Management...... 21 Banking System...... 21 Banking Regulation...... 21

ISRAEL

6 Banking Supervision...... 21 Central Bank Reporting...... 21 Exchange Controls ...... 22 Bank Account Rules...... 22 Anti-money Laundering and Counter-terrorist Financing ...... 22 Banking Sector Structure...... 24 Major Domestic Banks...... 24 Overall Trend...... 24 Payment Systems...... 25 Overview...... 25 High-value...... 26 Low-value ...... 28 Payment and Collection Instruments...... 29 Overview and Trends...... 29 Statistics of Instrument Usage and Value...... 29 Paper-based...... 29 Checks...... 29 Demand Drafts ...... 29 Electronic...... 29 Credit Transfer...... 29 Direct Debits ...... 30 Payment Cards...... 30 ATM/POS...... 30 Electronic Wallet ...... 30 Liquidity Management ...... 31 Short-term Borrowing...... 31 Overdrafts...... 31 Bank Lines of Credit / Loans ...... 31 Trade Bills – Discounted...... 31 Factoring...... 31 Commercial Paper...... 31 Bankers’ Acceptances...... 31 Supplier Credit ...... 31 Intercompany Borrowing, including Lagging Payments ...... 32 Short-term Investments ...... 32 Interest Payable on Bank Account Surplus Balances...... 32 Demand Deposits...... 32 Time Deposits...... 32 Certificates of Deposit...... 32 Treasury (Government) Bills...... 32 Commercial Paper...... 32 Money Market Funds ...... 32

ISRAEL Return to Contents page 7 Repurchase Agreements ...... 32 Bankers’ Acceptances...... 33 Liquidity Management Techniques ...... 33 Cash Concentration...... 33 Notional Pooling...... 33 Trade Finance...... 34 General Rules for Importing/Exporting ...... 34 Imports...... 35 Documentation Required...... 35 Import Licenses ...... 35 Import Taxes/Tariffs...... 35 Financing Requirements...... 35 Risk Mitigation...... 35 Prohibited Imports...... 35 Exports...... 36 Documentation Required...... 36 Proceeds ...... 36 Financing Requirements...... 36 Export Licenses ...... 36 Export Taxes/Tariffs...... 36 Risk Mitigation...... 36 Prohibited Exports...... 36 Information Technology...... 37 Electronic Banking...... 37 External Financing...... 38 Long-term Funding ...... 38 Bank Lines of Credit / Loans ...... 38 Leasing...... 38 Bonds ...... 38 Private Placement...... 38 Asset Securitization / Structured Finance...... 39 Government Investment Incentive Schemes / Special Programs or Structures. . . . 39 Useful Contacts...... 40 National Investment Promotion Agency...... 40 Central Bank...... 40 Payment System Operator...... 40 Banks...... 40 Stock Exchange ...... 40 Ministry of Finance ...... 40 Ministry of Commerce...... 40 Chamber of Commerce...... 40

ISRAEL Return to Contents page 8 Financial Environment

Country Information Financial Environment

Geographical Information

Capital Jerusalem Although Jerusalem has been proclaimed by Israel as its official capital since 1950, most countries maintain their embassies at Tel Aviv.

Area 20,770 km2

Population 8.42 million

Official languages Hebrew, Arabic (officially used by Arab minority)

Political leaders Head of state — President Reuven Rivlin (since July 24, 2014) Head of government — Prime Minister Binyamin Netanyahu (since March 31, 2009).

Business Information

Currency (+ SWIFT code) New Israeli shekel (ILS)

Business/Banking hours 08:30–18:30 (Sun–Thu), 08:30–14:00 (Fri)

Bank holidays 2018 — May 20, July 22, September 10, 11, 18, 19, 24, October 1 2019 — March 22, April 20, 26, May 9, June 9, August 11, September 30, October 1, 8, 9, 14, 21 2020 — March 11, April 9, 15, 29, May 29, July 30, September 19, 20, 27, 28, October 3, 10 Source: www.goodbusinessday.com International dialing code + 972

ISRAEL Return to Contents page 9 Country Credit Rating

FitchRatings last rated Israel on November 28, 2017 for issuer default as:

Term Issuer Default Rating

Short F1 + Financial Environment Long A +

Long-term rating outlook Stable

Source: www.fitchratings.com, April 2018.

ISRAEL Return to Contents page 10 Economic Statistics

Economics Table 2011 2012 2013 2014 2015

GDP per capita (USD) 34,717 33,760 37,392 38,498 36,724 Financial Environment GDP (ILS billion) 937 1,001 1,056 1,094 1,150

GDP (USD billion) 262 260 292 306 296

GDP volume growth* (%) + 5.0 + 2.9 + 3.3 + 2.6 Ø

BoP (goods, services & income) as % GDP – 0.7 – 2.5 + 0.3 + 0.8 + 1.8

Consumer inflation* (%) + 3.5 + 1.7 + 1.5 + 0.5 – 0.6

Population (million) 7.54 7.69 7.82 7.94 8.06

Unemployment (%) 5.6 6.8 6.2 5.9 5.3

Interest rate (lending rate)† (%) 5.922 5.227 4.195 3.587 3.449

Exchange rate‡ (ILS per USD)† 3.5781 3.8559 3.6108 3.5779 3.8868

2017 2016 Q1 Q2 Q3 Q4

GDP per capita (USD) 38,828 – – – –

GDP (ILS billion) 1,223 – – – –

GDP (USD billion) 318 – – – –

GDP volume growth* (%) + 3.4 + 3.8 + 3.1 + 3.1 NA

BoP (goods, services & income) as % GDP + 0.9 – – – –

Consumer inflation* (%) – 0.5 + 0.5 + 0.4 – 0.2 + 0.3

Population (million) 8.19 – – – –

Unemployment (%) 4.8 4.2 4.2 4.2 4.2

Interest rate (lending rate)† (%) 3.484 3.525 3.503 3.491 NA

Exchange rate‡ (ILS per USD)† 3.8406 3.7322 3.593 3.563 3.510

*Year on year. †Period average. ‡Market rate. Source: International Financial Statistics, IMF, April 2018 and 2017 Yearbook.

ISRAEL Return to Contents page 11 Sectoral Contribution as a % of GDP

Agriculture – 2.3%

Industry – 26.6%

Services – 69.5% (2017 estimate) Financial Environment Major Export Markets

USA (29.3%), Hong Kong (7.4%), UK (6.5%), China (5.5%), Belgium (4.2%)

Major Import Sources

USA (12.2%), China (8.9%), Switzerland (6.4%), Germany (6.1%), Belgium (5.9%), UK (5.5%), Netherlands (4.1%), Italy (4.0%)

ISRAEL Return to Contents page 12 Political and Economic Background

Economics Interest Rate Management Policy

Israel’s independent central bank, the Bank of Israel, is responsible for monetary policy and, Financial Environment through its monetary committee, sets interest rates to achieve the goal of price stability. It has set a policy targeting a long-term inflation rate of between 1% and 3%. When setting the interest rate, the Bank of Israel seeks to manage expected inflation over the next year.

Foreign Exchange Rate Management Policy

The new Israeli shekel (ILS) is a floating currency determined by market forces. The Bank of Israel has a policy of non-intervention in the currency market, although it retains the power to intervene if it deems intervention to be necessary. The conditions have been widened to include when changes in the exchange rate of the shekel are inconsistent with underlying economic conditions or when Bank of Israel feels the foreign exchange markets are not functioning properly.

Major Economic Issues

Thriving technology and pharmaceutical sectors have helped drive economic growth in Israel; exports comprise more than 30% of Israeli economic activity. Exports of goods and services exceeded USD 100 billion in 2017; exports by high-tech industries rose 7.5%in Q4. GDP grew 3.4% in 2017 (the economy expanded 4% in 2016). The central bank forecasts 3.5% growth in 2018, and 3.4% in 2019. Israel recorded a current account deficit of 1.1% of GDP in 2017. Unemployment was at a 50-year low of 3.7% in January 2018.

Israel is seeking exemption from the US steel and aluminum tariffs claiming it will impact on dozens of small and medium-sized companies. According to the Metal Industries Association’s figures, exports of steel products to the USA totaled USD 21 million in 2017, and exports of aluminum USD 3-4 million.

Teva, one of the country’s largest companies (accounting for as much as 3% of Israeli economic output) and the world’s largest generics drugmaker, has announced cuts to its global workforce and an estimated 1,700 jobs are expected to be lost in Israel. President Netanyahu has stated publicly that his government should do everything possible to prevent the closure of plants in Jerusalem.

More than 25% of the country’s population, in particular Arab-Israeli families and ultra-orthodox Jews, live below the poverty line; in March 2018, the IMF reported that relative poverty was highest in Israel among OECD countries. Recognizing the extent of the problem and introducing measures to tackle poverty, and associated issues such as employment and education among the most affected groups, is vital in order to reduce the social and economic divisions in the country. The 2017-18 budget is aimed at reducing the cost of living, tackling a housing crisis and

ISRAEL Return to Contents page 13 boosting economic growth (corporate income tax was lowered to 23% on January 1, 2018). Further proposed tax cuts, the result of the country’s tax surplus, have been criticised by opposition parties, who hold that extra funds should go towards bolstering social services.

In September, the government approved a five-year USD 32.4 billion infrastructure plan aimed at increasing productivity and the growth potential of the economy. The OECD has singled out

Financial Environment productivity as a problem that the country needs to address: according to the OECD, labor productivity in Israel is relatively low compared to most OECD members.

In March 2018, the OECD warned that the country’s econnomy was at risk of overheating if the central bank delayed a rise in interest rates. The government’s target for annual inflation of 1-3%. It is expected the central bank will not raise interest rates (currently 0.1%) until late 2018. It has highlighted the appreciation of the ILS against the USD as one reason for keeping rates low. The ILS hit a seven year high against the USD in January 2018, when it was valued at ILS 3.4 against the USD. In 2017, the ILS’s value increased 6.7% against the USD, with the Manufacturers Association of Israel estimating that the depreciation of the USD cost Israeli exporters up to USD 2.3 billion in revenue over the same period.

Politics Government Structure

Israel is a parliamentary democracy.

The president is head of state but plays a largely ceremonial role.

The prime minister is the head of government.

The government is based in Jerusalem.

Executive Executive power belongs to the government, which is headed by the prime minister. The prime minister forms a government with the approval of the Knesset.

The current government is headed by Prime Minister Binyamin Netanyahu. Mr. Netanyahu became Prime Minister in March following the February 2009 elections.

Legislature Israel has a unicameral legislature, the 120-member Knesset.

Members are directly elected to represent single-member constituencies via simple majority voting. Elections to the Knesset must be held at least every four years. The next legislative election must be held by 2019.

International memberships Israel is a member of the Bank for International Settlements (BIS), the World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD), which Israel joined in May 2010.

ISRAEL Return to Contents page 14 Major Political Issues

Since its creation in 1948 in the wake of the Second World War, Israel has perpetually been the center of conflict within the Middle East. Israel’s politics continue to be dominated by the Israeli- Palestinian peace process. Relations with neighboring countries are also difficult to manage. In March 2017, the UN accused Israel of imposing an ‘apartheid regime’ of racial discrimination against Palestinian people. In the same month Israel announced plans to build 2,500 more homes Financial Environment for Jewish settlers in the occupied West Bank. More recently, the parliament passed a law enabling the expulsion of Palestinians from Jerusalem and agreed the terms of the Basic Law which defines Israel as ‘the nation-state of the Jewish people’.

In December 2017, the US announced it would recognize Jerusalem as capital of Israel and move its embassy from Tel Aviv. The move provoked widespread condemnation from the United Nations among others. Prime Minister Netanyahu, who has not publicly endorsed the idea of a two-state solution to the problem, has appealed to the EU to join the US in recognizing Jerusalem as Israel’s capital, a suggestion the EU has rebuffed. The EU has instead spoken of the need for Jerusalem to be the capital for both Israel and Palestine, and in January assured Palestinian president, Mahmoud Abbas, it supported his ambition to have East Jerusalem as capital of a Palestinian state. Peace talks between Israel and Palestine have stalled.

Iran’s nuclear weapons program and its president’s anti-Israel rhetoric remain a threat to Israeli security. Israel is opposed to the Iran nuclear deal struck in 2016 and the lifting of economic sanctions against the country and recent protests in Iran have only heightened tensions between the two countries.

Domestically, the coalition government is under strain; policy and personality tensions could spark an early election; they are not due until November 2019. The coalition is split on a number of issues including, the government’s decision to use a tax surplus to further reduce corporate and income tax and VAT rather than to invest in social services. Income inequality in Israel is ranked third in the world behind Mexico and the USA and Netanyahu’s government is accused of doing little to address this.

In February 2018, Israeli police recommended indicting Mr. Netanyahu for bribery and breach of trust. A decision is expected to recommend the prime minister be indicted. although the country’s Attorney-General will have to decide to whether to press charges. If indicted, it is likely the prime minister will have to resign his positiion.

ISRAEL Return to Contents page 15 Taxation

Resident/Non-resident

A company is considered resident if it is either incorporated in, or controlled and managed from Israel.

Financial Environment A foreign corporation managed and controlled by a new Israeli resident or a senior returning resident (i.e. an individual who spent ten years abroad) generally will not be classified as an Israeli resident company for a period of ten years.

Tax Authorities

Ministry of Finance, Israel Tax Authority (ITA).

Tax Year/Filing

The tax year begins in January. Certain companies, including subsidiaries of foreign companies, may apply for a special tax year but the application will only be approved in special circumstances.

Companies must file an annual tax return no later than five months following the end of the tax year (an extension to file may be obtained in certain circumstances). The tax authorities determine advance tax payments, with some taxpayers required to pay tax according to their monthly turnover.

The filing of a consolidated return generally is not permitted in Israel and each company in a group is required to file its own return. However, if certain conditions are satisfied, qualified ‘industrial companies’ may file a consolidated tax return.

Companies are required to make monthly advance payments of tax based on a fixed ratio of the company’s turnover. Alternatively, a company may make ten monthly payments, based on its previous year’s tax liability, starting in the second month of the tax year. The balance of any tax payable is due at the beginning of the following tax year, linked to the consumer price index, and bears interest at a rate of 4%.

Corporate Taxation

Resident companies are subject to tax on their worldwide income with a credit granted for overseas taxes paid. Non-resident companies are only liable to tax in Israel on Israeli-sourced income.

The corporate income tax rate is 23%.

An Israeli company classified as a preferred enterprise is taxed depending on where its facilities are located (7.5% if located in “Area A” and 16% if located elsewhere).

An Israeli company classified as an approved or benefited enterprise is entitled to a reduced tax rate of between 0% and 25%, with the period of benefits depending on where the company’s facilities are located and whether certain conditions are satisfied. The benefits will be revoked if profits deriving from the benefited income are distributed.

ISRAEL Return to Contents page 16 An Israeli company classified as a preferred technological enterprise is entitled to a reduced rate of 12% (7.5% if its facilities are located in Area A) on technological earnings. Special preferred technological enterprises are entitled to a reduced tax rate of 6% on technological earnings.

Qualified companies may be eligible for both reduced corporate tax rates and grants from the investment center.

Financial Environment There are no basic differences in the tax regime as applied to different forms of business organisations. However, partnerships are transparent for tax purposes.

There is no surtax or alternative minimum tax.

Trading or business losses may be offset against income from any source in the same year. Losses may be carried forward indefinitely to be offset against business income and business capital gains. Losses may not be carried back.

Various programs are available, e.g. foreign investment incentives (approved enterprise, various tracks), a holding company regime and R&D incentives.

Advance Ruling Availability

The Israeli Tax Authorities (ITA) are authorized by law to provide advanced tax rulings on all tax matters (income tax, VAT, land-betterment tax and encouragement laws).

Advanced tax rulings may be given in an agreement with the taxpayer or without such an agreement. Taxpayers can only make an appeal against tax rulings that were given without an agreement.

After filing a request for an advanced tax ruling, the taxpayer cannot withdraw the request without the approval of the Commissioner. Generally, the ITA will be committed to its tax rulings unless they were based on false or incomplete information.

Withholding Tax (Subject to Tax Treaties)

Payments to: Interest Dividends Royalties Other income Branch Remittances

Resident 23%,unless a witholding tax None/23% 0%/20%/30% 0%/20%/30% NA companies approval is required

4%/5%/15%/ Non-resident 0%/23% 20%/ 23% 23% 15% companies 25%/30%

There is no withholding tax on dividends paid to resident companies so long as distribution is made out of corporate taxed income.

Corporate income tax (23%) will be imposed if the recipient of the interest is a “body of persons,” although the rate may be reduced under a tax treaty. A 0% withholding tax applies to interest on certain bonds. ISRAEL Return to Contents page 17 Dividends paid to a non-controlling foreign resident (i.e. one that holds less than 10% of the Israeli company) are subject to a 25% withholding tax; otherwise, the rate is 30%. These rates may be reduced under a tax treaty or incentives regime.

Dividends distributed by a preferred enterprise are taxed at a 20% rate. Dividends distributed by an approved/benefited enterprise generally are taxed at a 15% rate if the distribution is made

Financial Environment from profits attributable to the approved enterprise, or at a reduced rate of 4% on the alternative incentive track (the ‘Ireland Track’).

Tax Treaties/Tax Information Exchange Agreements (TIEAs)

Israel has exchange of information relationships with 55 jurisdictions through 55 double tax treaties and no TIEAs (www.eoi-tax.org, April 2018).

Transfer Pricing

The transfer pricing rules, which are based on the OECD guidelines, apply to transactions between an Israeli resident and its related non-resident. A hierarchy of transfer pricing methodologies applies, with preference given to transaction-based methods over profit-based methods.

Documentation requirements mandate that the taxpayer attach a statement to the annual tax return and provide a detailed transfer pricing study at the request of the tax authorities. Advance pricing agreements may be obtained.

The taxpayer generally must disclose all facts relevant for taxation, especially with respect to transactions with related parties.

Controlled Foreign Companies

A foreign company that is controlled by Israeli shareholders and that has accumulated undistributed passive profits taxed at a rate lower than 15% will be considered a controlled foreign company. In such as case, the Israeli controlling the CFC will be treated as if it had received its proportionate share of the profits as dividends. Upon the distribution of profits, the Israeli controlling shareholder will be eligible for a deduction in the amount of the gross notional dividends that were subject to Israeli tax, in addition to a tax credit for foreign tax paid.

Anti-avoidance and Disclosure

The Israeli tax authorities can challenge artificial transactions.

The taxpayer generally must disclose all facts relevant for taxation, especially with respect to transactions with related parties.

Cash Pooling

There are no specific tax rules for cash pooling arrangements in Israel.

ISRAEL Return to Contents page 18 Financial Transactions/Banking Services Tax

Financial institutions are not liable to VAT; instead they pay a salary tax at 17% of the salaries paid.

Thin Capitalization

There are no thin capitalization rules. Financial Environment Stamp Duty

Stamp duty was abolished altogether in 2006; however, it is still applicable to some documents signed before 2006.

Sales Taxes/VAT (incl. Financial Services)

VAT is levied on the supply of goods and performance of services taking place in Israel at a rate of 17%. Generally, all companies must register for VAT. A non-resident who has a business in Israel must nominate a local representative for VAT purposes within 30 days of initiating activities in Israel.

Certain items are subject to a 0% rate, including exported goods, intangible goods and the provision of certain services to non-residents (i.e. tourism services), the transport of cargo to and from Israel, the sale of goods and services to the Eilat free-trade zone, and the sale of fresh fruit and vegetables.

Financial institutions, including banks and insurance companies, pay an equivalent tax at the rate of 17% based on their payroll and profits.

Non-profit organizations pay an equivalent tax at the rate of 7.5% based on their payroll.

Capital Gains Tax

The capital gains tax rate depends on the purchase date and the nature of the asset. The general capital gains tax rate for a corporation is the standard corporate tax rate. The inflationary component of the gain (accrued as from January 1, 1994) is exempt from taxation.

An Israeli resident is subject to capital gains tax in Israel on the disposal of assets, regardless of whether the assets are located in Israel. Capital gains derived from the sale, exchange, transfer or other disposition of tangible and intangible capital assets located in Israel or constituting a direct or indirect ownership interest of assets in Israel, are treated as Israeli-source income and are subject to Israeli capital gains tax, regardless of whether the seller is a resident of Israel for Israeli tax purposes. Shares and other securities of Israeli companies, or shares and other securities of non-Israeli companies holding their main assets in Israel, also may be treated as Israeli assets.

Persons who are not residents of Israel for tax purposes are exempt from Israeli capital gains tax on gains from the sale of shares traded on the Tel Aviv stock exchange and on gains from the sales of shares of Israeli companies traded on stock exchanges overseas acquired after listing, unless the gain is attributable to a Permanent Establishment that the seller maintains in Israel.

ISRAEL Return to Contents page 19 A broad exemption from capital gains tax applies to gains derived from the sale of securities in Israeli or Israeli-related companies acquired on or after January 1, 2009 by all non-residents (both entities and individuals), regardless of whether the non-resident is eligible for tax treaty benefits. This exemption is subject to several restrictions. The exemption does not apply:

(1) to shares of companies whose assets consist primarily (directly or indirectly) of real estate (i.e.

Financial Environment land or buildings);

(2) if the shares sold were purchased from a related party or by way of certain tax-deferred reorganizations;

(3) if the shares were held through a PE; or

(4) when the non-resident selling entity is 25% or more controlled by Israeli residents.

Payroll and Social Security Taxes

Payroll tax is levied only on non-profit organizations (at a rate of 7.54% of wages) and financial institutions (at a rate of 17% of wages). It is in lieu of VAT on their services.

National insurance is required by law. Some employers pay part or all of employees’ compulsory contributions to the national insurance scheme.

Contributions may be offset for corporate tax purposes.

Real Property Taxes

‘Property betterment tax’ is applicable to the sale of real property. The principles of property betterment tax are similar to those of capital gains tax. The betterment is calculated from the date of purchase until the date of sale, and the amount of betterment is subject to the corporate tax rate at the date of sale.

Furthermore, in certain circumstances (especially when real property is sold), the municipal authorities may levy a ‘betterment levy’ at the rate of 50% on the betterment that the real property has gained as a result of the local municipal authorities’ actions. Any betterment levy paid may be deducted from the betterment subject to property betterment tax.

The purchaser of real property is subject to purchase tax (acquisition tax) of 8% on consideration up to ILS 4,967,445 and 10% on consideration exceeding this amount. When the asset purchased is a residential apartment, the purchaser is subject to tax at progressive rates ranging from 0-10%..

Other Taxes

A purchase tax (also applicable to individuals) is levied on certain imports or local industrial production and is collected from local manufacturers 15 days after the end of the month in which the goods are sold. Importers are required to submit the collected tax when the goods are released from customs.

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2018 (www.deloitte.com).

ISRAEL Return to Contents page 20 Cash Management Cash Management Banking System

Banking Regulation Banking Supervision Central bank The independent Israeli central bank is the Bank of Israel. It was established on December 1, 1954, and is based in Jerusalem. Its authority derives from the new Bank of Israel Law, which came into force from June 1, 2010. It also operates in accordance with the Banking Law and the Currency Control Law.

Within Israel, it is the banker to the government and to other banks. It issues currency, manages the country’s monetary reserves, regulates Israel’s payment and clearing systems, supervises and regulates the banking system in Israel and supports government economic policy.

Other banking supervision bodies Bank supervision is performed by the Bank of Israel’s Banking Supervision Department (headed by the Supervisor of Banks).

Central Bank Reporting General Israel applies central bank reporting requirements.

What transactions – listed Foreign currency transactions are reported on a daily and weekly basis to the Bank of Israel for balance of payments statistics purposes.

Foreign exchange transactions relating to foreign currency derivatives are required to be reported on a quarterly basis by both Israeli residents and for non-residents. This requirement includes all conversion transactions between domestic and foreign currency.

Whom responsible The financial intermediary (bank) usually transmits the required information to the Bank of Israel on behalf of its customers.

Additional reporting for liquidity management schemes Transfers between resident and non-resident bank accounts participating in the same liquidity management scheme are not subject to additional reporting requirements.

ISRAEL Return to Contents page 21 Exchange Controls Exchange structure Israel’s official currency is the new Israeli shekel (ILS). Its value is determined by market forces.

Classification Cash Management The currency is floating.

Exchange tax There is no exchange tax.

Exchange subsidy There is no exchange subsidy.

Forward foreign exchange market Non-residents ILS and foreign currency swap transactions and foreign currency forwards are subject to a 10% reserve requirement.

ILS and foreign currency forwards are required to be reported to the BOI.

Capital flows There are no restrictions on capital transactions.

Loans, interest and repayments There are no controls on the provision of loans by commercial banks.

Royalties and other fees There are no restrictions.

Profit remittance There are no restrictions on the remittance of profits into or out of Israel.

Bank Account Rules

Resident entities are permitted to hold fully convertible domestic currency (ILS) and foreign currency bank accounts domestically and outside Israel.

Non-resident entities are permitted to hold fully convertible domestic currency bank accounts and foreign currency bank accounts within Israel.

Anti-money Laundering and Counter-terrorist Financing

QQ Israel has implemented anti-money laundering and counter-terrorist financing legislation (Prohibition on Money Laundering Law No. 5760 of 2000, most recently amended by Laws 5772 of 2012 and Law 5774 of 2014, along with various subsequent Regulations and Orders, most recently Combatting Terrorism Law No 5776 of 2016). Israel is in the process of revising Proper Conduct of Banking Business Directive No. 411. The revisions came into effect on January 1, 2018.

QQ Israel is a member of the Council of Europe’s MONEYVAL Select Committee as an active observer.

ISRAEL Return to Contents page 22 QQ Israel has a financial intelligence unit, the Israeli Money Laundering and Terror Financing Prohibition Authority (IMPA), which is a member of the Egmont Group.

QQ Account opening procedures require formal identification of the customer as well as beneficial owners and beneficiaries and any third parties acting on their behalf. Cash Management QQ Authorized signatories are required to provide proof of their authorization to act on behalf of individuals or legal entities.

QQ Banks must identify parties who perform transactions that are subject to reporting requirements in accounts for which they are neither the owner nor signatory.

QQ Relationships with shell banks are prohibited.

QQ Financial institutions are required to conduct risk-based ongoing due diligence.

QQ Financial institutions must record and report transactions deemed to be ‘unusual’ in view of the information in the financial institution’s possession to the IMPA.

QQ Financial institutions must also record and report transactions if it is suspected that the transaction is related to terrorist property or the transaction may be related to an act of terrorism.

QQ Financial institutions must identify parties making electronic cross-border transactions exceeding ILS 1,000,000 (unless the transfer is to/from a high-risk country in which case the threshold is ILS 5,000).

QQ Currency transactions above ILS 50,000, or the equivalent in foreign currency, in the form of cash, travellers’ checks or bearer bills must be reported as soon as possible. All transactions with a high- risk country or territory exceeding ILS 5,000 must be reported.

QQ The issue of all cheques of ILS 200,000 and above must be reported.

QQ Individuals are required to report cross-border currency transportations above ILS 100,000 to the customs authorities. If the person entering the country is a new immigrant, the threshold is ILS 1,125,000.

QQ Transfers to or from Israel through an account and to or from a correspondent account of a financial institution, unless the institution is incorporated in an OECD member country, in an amount equivalent to at least ILS 1,000,000, must be reported.

QQ Individuals who carry cash or assets into or out of Israel must complete a Customs declaration. The threshold for completing the declaration is ILS 100,000 or ILS 12,000 if crossing to the Gaza Strip.

QQ Records of particulars of identification must be kept for a minimum of seven years. Additionally, records must be kept for reported transactions as well as transactions in the amount of at least ILS 10,000 for a period of at least seven years from the date on which the transaction was recorded.

Data as at April 2018.

ISRAEL Return to Contents page 23 Banking Sector Structure Major Domestic Banks

Total assets (USD million) Bank December 31, 2016 Cash Management Bank Hapoalim 115,939

Bank Leumi le-Israel 113,481

Mizrahi Tefahot Bank 59,626

Israel Discount Bank 56,812

First International Bank of Israel 33,094

Source: www.accuity.com.

Overall Trend

The Israeli banking sector comprises 15 commercial banks, one non-bank financial institution and two joint service companies. In addition, five foreign banks (Barclays Bank, Citibank, HSBC, BNP Paribas Israel, Citibank and the State Bank of India) have a branch in Israel.

Bank Hapoalim and Bank Leumi le-Israel dominate the Israeli banking market (their combined market share is approximately 60% in terms of assets) and have sought to grow by establishing a presence abroad. Israel’s five largest banks control around 94% of the domestic banking sector’s total assets.

In 2016, the Israeli government approved legislation to increase competition in Israel’s highly concentrated financial sector. The key change the bills seeks to effect, is the separation of the major Israeli banks from credit companies. Hapoalim, Leumi, and Discount control about 76% of credit in Israel and will, under the new law, be forced to sell their existing credit card companies within three years. However, the law also provides incentives for new financial institutions to enter the market. It is hoped that financial sector reform will benefit both retail customers and small businesses.

The banking sector in Israel is increasingly focused on the digital delivery of financial services. In 2017, for example, Bank Leumi launched the mobile-only bank, Pepper. More than 50% of banking services were conducted from outside bank branches in 2016, according to the central bank. This change in banking practices has resulted in an increased number of bank branch closures (23 in 2016), and a reduction in bank employees (1,940 in 2016).

In January 2018, the central bank introduced changes to the banking sector making it possible to move accounts from one bank to another within a week. It also, in order to increase competition in the sector, introduced a central computerization office to make it easier for new banks to deal with entry barriers that currently exist.

ISRAEL Return to Contents page 24 Payment Systems

Overview

Israel has three interbank payment systems: the RTGS system (Zahav), the Banks’ Automated Cash Management Clearing House (Masav) and the Banks’ Paper-based Clearing House (BCH).

The national interbank RTGS system is primarily used for large-value (over ILS 1 million) credit transfers. The RTGS system, also known as Zahav, opened in July 2007. The BCH is managed by the Banks’ Clearing House board and operates as a paper-based multilateral net settlement system. The Banks’ Automated Clearing House (Masav), is a multilateral net settlement system which processes salary payments and low-value retail payments. It is managed by the Banks’ Clearing House board and operated by the Banking Clearing Center Ltd (BCC), a company which belongs to Israel’s five leading banks.

The Electronic Check Clearing Law was fully implemented in November 2017.

The national ATM and POS communication networks, operated by Automatic Banking Services Ltd (a company belonging to Israel’s five leading banks) can also be used to process interbank card payments.

The ILS is traded in the Continuous Linked Settlement (CLS) system. CLS settles both legs of a foreign exchange transaction simultaneously.

ISRAEL Return to Contents page 25 High-value

Name of system Zahav

Settlement type Real-time gross settlement

Payments are settled in real time with immediate finality.

Cash Management Settlement cycle

Links to other systems NA

Payments processed Large-value and urgent credit transfers, as well as interbank obligations from the ACH and BCH

Currency of payments ILS processed

Value and other limits to Generally any payment in excess of ILS 1 million has to be executed in processing the Zahav system.

Operating hours 07:45–18:30 IST (Israel Standard Time) Sunday to Thursday 07:45–14:00 IST Fridays and holidays

System holidays 2018 — May 20, July 22, September 9–11, 18, 19, 24 October 1 2019 — March 22, April 20, 26, May 9, June 9, August 11, September 30, Octiber 1, 8, 9, 14, 21

Cut-off times Customer payments = 18:30 CET (14.00 on Friday) Interbank payments = 19:30 CET (14:15 on Friday)

Participants There are 20 participants in Zahav, 17 direct and 3 indirect

Access to system Using SWIFT format

Future developments NA

ISRAEL Return to Contents page 26 Name of system Paper-based (Checks) Clearing House (BCH)

Settlement type Multilateral net settlement

Settlement cycle Payment instruments are transferred in two sessions: the first starts at 22:30, for the presentation and return of non-magnetic Cash Management instruments (non-checks).; and the second session starts at 01:00 (23:00 on Mondays and public holidays) for the electronic presentation and return of magnetic instruments (checks). At 18:30, each bank sends the files to the other members of the clearing house and also sends a summary file to the clearing house to the BCH. At night, the clearing house performs a presettlement procedure and creates a multilateral entry of debits and credits of participants which are sent for final settlment in the Zahav system the next morning (T+1) during the Paper-based Clearing House settlement window from 09:30.

Links to other systems NA

Payments processed Checks, paper-based credit and debit transfers.

Currency of payments ILS processed

Value and other limits to There is a maximum value threshold of ILS 1 million. processing

Operating hours 09:00-18:30 each banking business day

System holidays The system is closed on Fridays and the days preceding most public holidays.

Cut-off times Payments must be submitted to banks by 18:30 IST (14:00 on Friday) for settlement on a next-day basis.

Participants All commercial banks in Israel are participants, plus the Bank of Israel. The BCH currently has 29 members.

Access to system Payment instructions are submitted to the BCH using the ABS Communication network.

Future developments NA

ISRAEL Return to Contents page 27 Low-value

Name of system Automated Clearing House (Masav)

Settlement type Multilateral net settlement

Masav processes all electronic credit transfers and direct debits

Cash Management Settlement cycle from 10:00 each day for settlement on a same-day basis. Payments received after 18:00 IST (13:30 on Friday) are processed on a next- day basis. Final settlement takes place across participants’ accounts at the Bank of Israel via Zahav between 10:00–18:30 IST (14:00 on Friday) on an end‑of‑day basis.

Links to other systems NA

Payments processed Most low-value automated transactions in Israel, including salary payments, direct debits and credit transfers.

Currency of payments ILS processed

Value and other limits to There is a maximum value threshold of ILS 1 million. processing

Operating hours The ACH is available to receive payment instructions 24 hours a day seven days a week.

System holidays The system is closed on weekends and public holidays.

Cut-off times 10:00 IST for same-day settlement 18:00 IST (13:30 on Friday) for end-of-day (T+1) settlement

Participants All organizations that can submit payment instructions to Masav can participate in the system. Masav currently has 41,939 participants.

Access to system Payment instructions are submitted to the ACH using the ABS Communication network.

Future developments All paper-based instruments, apart from checks, are expected to be processed by the ACH in the near future.

ISRAEL Return to Contents page 28 Payment and Collection Instruments

Overview and Trends

The most important cashless payment instruments in Israel are electronic transfers and checks. Cash Management There has been a steady increase in the use of direct debits and payment cards over recent years, especially for retail transactions and electronic credit transfer have also rapidly gained in popularity.

Statistics of Instrument Usage and Value

Transactions Traffic (value) (thousands) % change (ILS million) % change

2015 2016 2016/2015 2015 2016 2016/2015

Checks 115,036 110,195 -4.2 936,346 924,935 -1.2

Direct debits 193,949 200,092 3.17 465,276 516,982 11.1

Direct credits 138,557 150,821 8.85 2,169,094 2,345,637 8.09

Source: Bank of Israel, Annual Report of the Banks’ Clearing House Commitee, 2016.

Paper-based Checks

The check is a widely used payment instrument in Israel, but has experienced a steady fall in popularity in recent years as a result of the increasing availability and usage of electronic alternatives.

Checks up to ILS 10,000 can be deposited via a mobile application. From November 21, 2017, check imaging was implemented across all banks for all checks deposited for payment.

Checks are cleared by the BCH.

Demand Drafts

Demand drafts are also processed by the BCH.

Electronic Credit Transfer

Most credit transfers in Israel take the form of direct credits, the majority of which are used for salary and pension payments and are initiated electronically. They are also used to make tax and benefit payments. Paper-based credit transfers are usually used by consumers and small businesses.

Large-value and urgent credit transfers are settled through the RTGS system with immediate finality. Low-value electronic transfers are processed by the ACH. All paper-based credit transfers are processed by the BCH.

ISRAEL Return to Contents page 29 Cross-border transfers are processed by bilateral correspondent banking arrangements. The majority of these are processed via SWIFT.

Direct Debits

Direct debits are commonly used for recurring low-value payments such as utility bills, mortgage Cash Management payments and insurance premiums.

Direct debits are processed by the ACH while paper-based debit transfers are processed by the BCH.

Payment Cards

The use of payment cards continues to increase in Israel, especially among retail consumers. There were approximately 8.2 million credit cards in circulation at the end of September 2017. Three companies control the market: Isracard, with a 50% market share; Leumi Card; and ICC-Cal, whose market share is 25% to 27%. In 2017, the Bank of Israel approved a fourth credit card processor, Tranzila and in March 2018 granted a license to Cardcom Acquiring Ltd.

There are an estimated 800 thousand debit cards in circulation, and 5.8 million deferred debit cards. Deferred debit card holders have their account is debited by an allocated monthly amount, as apposed to the immediate debiting of conventional debit cards. In January 2018, the Bank of Israel’s announced plan to reduce the interchange fee for deferred debit cards to 0.5% (from 0.7%) in three stages: 0.6% from January 1, 2019; 0.55% from January 1, 2021; and 0.5% from January 1, 2024.

The international card issuing companies Visa and MasterCard are the leading issuers of credit cards in Israel.

Each bank in Israel has its own clearing and settlement arrangements with card issuers.

ATM/POS

There is an increasing availability and use of ATMs and POS terminals.

Israel’s national ATM and POS communication networks are operated by Auto Banking Services Ltd (Shva, a company belonging to Israel’s four leading banks) which has also established over 110,000 POS terminals and 285 bank-independent ATMs.

From August 1 2017, all new terminals will be EMV-compliant.

Electronic Wallet

Electronic money schemes have only recently been introduced into Israel, in the form of reloadable pre-paid cards.

ISRAEL Return to Contents page 30 Liquidity Management

Short-term Borrowing Overdrafts Cash Management

Both resident and non-resident companies can access unlinked shekel (ILS) overdrafts (i.e. not linked to price increases).

Interest is charged at a margin over the prime rate. Penal interest is charged for exceeding agreed open-ended overdraft limits.

There is usually a fixed annual charge, which is collected quarterly in advance.

Bank Lines of Credit / Loans

Resident and non-resident entities can arrange short-term bank loans denominated in local currency (unlinked and consumer-price-index linked) and major foreign currencies from local and foreign banks.

A floating interest rate is usually charged on foreign currency loans at a margin over Libor (London interbank offered rate). Domestic currency loans usually have fixed rates of interest.

Collateral – receivables, pledged deposits, securities or even a floating charge – is usually required.

Trade Bills – Discounted

Discounting trade bills is not a recognized method of short-term financing in Israel.

Deferred checks are discounted by banks, as are credit card payments, for periods of up to three years.

Factoring

Factoring is available in Israel and used by small and medium-sized enterprises for domestic receivables and export proceeds. Large companies do not tend to use factoring.

Commercial Paper

Commercial paper is rarely used in Israel for legal and regulatory reasons.

Bankers’ Acceptances

Bankers’ acceptances are not used in Israel.

Supplier Credit

Supplier credit is commonly used, although buyer credit is increasingly being preferred in international trade.

ISRAEL Return to Contents page 31 Intercompany Borrowing, including Lagging Payments

Israeli groups are permitted to establish intercompany loans. However these intercompany loans only take place between parent and subsidiary companies. Subsidiaries belonging to the same parent group and unrelated companies do not tend borrow from each other. Cash Management Short-term Investments Interest Payable on Bank Account Surplus Balances

Banks are permitted to pay interest on current account surpluses.

Demand Deposits

Interest-bearing demand deposit accounts are available to both resident and non-resident entities in ILS or major foreign currencies.

Time Deposits

Banks usually offer time deposits in ILS or a widely traded foreign currency with maturities ranging from one week to 12 months. Interest is usually paid upon the maturity date but can be paid periodically for one-year short-term deposits. Foreign banks offer higher rates of interest.

Certificates of Deposit

Certificates of deposit are issued in Israel.

Treasury (Government) Bills

Treasury bills (Makam) have experienced a significant increase in popularity among investors in the last few years. The principal investors in T-bills are commercial banks, money-market funds, insurance companies and provident funds. Treasury bills can be issued directly via auction by the Bank of Israel or traded via the Tel Aviv Stock Exchange. The minimum investment amount is ILS 1 million.

Commercial Paper

Commercial paper has been issued by companies on only a few occasions, most of which have involved the sale of non-tradable paper to investors via private placement. Bank financing is a cheaper method of investment.

Money Market Funds

Mutual funds are increasingly available.

Repurchase Agreements

Repurchase agreements on government bonds and Makams are auctioned by the Bank of Israel.

ISRAEL Return to Contents page 32 Bankers’ Acceptances

Bankers’ acceptances are not used in Israel.

Liquidity Management Techniques

Cash Management Cash Concentration

Cash concentration is the more common technique used by companies to manage company and group liquidity in Israel and is offered on a selective basis by international cash management banks and, increasingly, leading domestic banks.

Both resident and non-resident bank accounts and separate legal entities can participate in a cash concentration structure provided by international cash management banks. Cross-border sweeping may however be subject to income tax deductions. The country’s domestic banks are still developing their cross-border liquidity management facilities.

Notional Pooling

Notional pooling is available in Israel. However, it is less common than cash concentration.

Both resident and non-resident bank accounts and separate legal entities can participate in a notional cash pooling arrangement located in Israel. Domestic banks are still developing their cross-border liquidity management facilities, however cross-border notional pooling can be offered by international banks.

ISRAEL Return to Contents page 33 Trade Finance Trade Finance Trade

General Rules for Importing/Exporting

Israel has established free trade arrangements with the EU, The European Free Trade Association (EFTA), Mercosur (a common market comprising Argentina, Brazil, Paraguay and Uruguay), the USA, Bulgaria, Colombia (yet to be ratified), Canada, Czechia, Hungary, Mexico, Romania, Russia, Sri Lanka, Egypt, Jordan, Turkey, Panama, Poland and Vietnam. Israel is also in negotiations for trade agreements with Russia, Ukraine, South Korea and India.

ISRAEL Return to Contents page 34 Imports

Trade Finance Trade Documentation Required

Imports will need to be accompanied by a bill of lading, a commercial invoice, a customs declaration and a packing list. A certificate of origin may also be required.

Import Licenses

Agricultural products are subject to quantitative restrictions and require import licenses.

Imports from countries prohibiting or restricting imports from Israel are subject to a special control regime.

Import Taxes/Tariffs

Customs duties apply to imports from countries with no free trade agreement with Israel. The majority of trade involving Israel is covered by the country’s free trade agreements.

Financing Requirements

There are no particular financing requirements for imports.

Risk Mitigation

Israel does not operate a national risk mitigation program for importers.

Prohibited Imports

Imports are also prohibited for moral reasons, to preserve wildlife and to protect national security.

ISRAEL Return to Contents page 35 Exports

Trade Finance Trade Documentation Required

Exports will need to be accompanied by a bill of lading, a commercial invoice, a customs declaration, a certificate of origin, a packing list and a certificate of origin.

Proceeds

There are no restrictions on the use of export proceeds.

Financing Requirements

There are no particular financing requirements for exports.

Export Licenses

Oil and defense equipment require export licenses.

Export Taxes/Tariffs

Israel does not levy taxes or tariffs on exports.

Risk Mitigation

The Israel Foreign Trade Risks Insurance Corporation (ASHRA) is a government-owned entity which provides medium and long-term export credit insurance for periods of between one and ten years. Export financing is usually provided by commercial banks. Private export credit insurance is available.

Prohibited Exports

Israel operates a list of prohibited exports.

ISRAEL Return to Contents page 36 Information Technology

Electronic Banking Information Technology Information An increasing number of companies have access to electronic banking services, as they are now widely available and offered by the majority of banks in Israel. There is no national bank- independent electronic banking standard in Israel. The services on offer usually include balance and transaction reporting as well as payment initiation. Browser-based banking services are offered by all the leading banks and are popular with individuals and small companies.

Israel’s online banking policy allows online bank accounts to be set up remotely by retail users and small companies. The Bank of Israel is enabling the country’s shift towards digital banking by extending the number of products banks are able to offer customers online; removing restrictions on the maximum value of funds a customer can transfer; and reducing the age limit for opening accounts remotely to 16, from 18 years of age. The central bank has amended the fees for all customer-executed banking services, making it less expensive (by 10-100%) for a customer to execute a transaction via direct means than through a bank teller.

Online banking is widespread and usually retail-orientated. Israel has a 79% internet penetration rate. Smartphone penetration is approximately 90%.

ISRAEL Return to Contents page 37 External Financing

External Financing External Long-term Funding

Bank Lines of Credit/Loans

Commercial banks and now insurance companies provide medium-term loans. In addition to bilateral loan agreements, syndicated loans are also available for larger funding requirements.

Bank loans can be arranged by both domestic and foreign-based companies in domestic and foreign currency.

Bank loans in unlinked shekels (ILS) (not linked to the consumer price index – CPI) are becoming more commonplace and are offered at margins over three- or six-month Treasury bills or the prime rate. These bank loans generally have a higher margin over cost. CPI-linked loans in ILS generally have the lowest margin.

Foreign currency loans or loans linked to a foreign currency are increasingly used.

Except for large companies with higher credit standing, banks require security with charges over physical or financial assets.

Leasing

Leasing is a popular form of longer-term finance mostly in the form of operating leases for vehicle purchases.

As with bank loans, interest is based on CPI-linked or unlinked ILS or denominated in or linked to USD. Both domestic and foreign currency financing can be at fixed or floating interest rates.

Bonds

Bond issuance remains the preserve of the largest and most successful companies in Israel.

Straight and convertible bonds are issued at fixed or floating rates.

Private Placement

Both domestic and foreign companies are permitted to place bonds privately. Detailed prospectuses are not required for privately placed bonds.

Asset Securitization / Structured Finance

Structured finance is in its infancy in Israel. A lack of appropriate legal, regulatory, taxation and accounting infrastructure are obstacles to carrying out securitization transactions.

ISRAEL Return to Contents page 38 Government (Agency) Investment Incentive Schemes / Special Programs or Structures

Insurance companies and pension and provident funds are prominent providers of long-term finance for Israel’s infrastructural development via private finance initiatives for roads, tunnels and

External Financing External light rail projects.

ISRAEL Return to Contents page 39 Useful Contacts National Investment Promotion Agency

Useful Contacts Ministry of Economy and Industry — www.economy.gov.il

Central Bank

Bank of Israel — www.boi.org.il

Payment System Operator

Automated Banking Services Ltd — www.shva.co.il

Banks

Bank Leumi le-Israel — www.leumi.co.il

Bank Hapoalim — www.bankhapoalim.co.il

Israel Discount Bank — www.discountbank.co.il

Mizrahi Tefahot Bank — www.mizrahi-tefahot.co.il

First International Bank of Israel — www.fibi.co.il

Stock Exchange

Tel Aviv Stock Exchange — www.tase.co.il

Ministry of Finance

Ministry of Finance — www.mof.gov.il

Ministry of Commerce

Ministry of Economy and Industry — www.economy.gov.il

Chamber of Commerce

Federation of Israeli Chambers of Commerce — www.chamber.org.il

ISRAEL Return to Contents page 40